What Are We Building?

A nationally respected full-line operator once told us why he did not lease cold-drink machines from bottlers. He had nothing whatever against bottlers; but, he said, he had spent years working 70-hour weeks to create his business. An important part of that business was its asset base, and he wanted to own that. “If I could borrow all the equipment I need, what would I have built?” he asked. This policy also allowed him to select exactly what he needed to meet the needs and desires of every location.

Of course, we’ve heard the other approach eloquently championed, too. The right way to do something is the way that works for the operator doing it. But we think the principle is worth pondering, especially now.

Some years back, a major machine manufacturer introduced a very elegant line of countertop vending equipment. We talked to a group of operators expert in small-site vending, and all of them were very enthusiastic about this line – they said they couldn’t wait until it began showing up on the used market, at which point they’d buy all they could find.

Every business that hopes to survive is always alert for ways to reduce its costs. At the same time, we think it’s important to ponder the old gag about the behavioral psychologist. Believing that all behavior is learned, this researcher set out to teach a mule not to eat – but, just when the animal got good at it, he died.

In periods when the vending industry has thrived, successful operators always have stayed competitive by fielding a well-thought-out mix of new, used and remanufactured equipment. The most prevalent approach was to reequip the top accounts with new machines every few years. The machines that had been installed on the previous cycle moved to the next tier of locations; the oldest machines moved out of the lowest tier and into the used market. At the same time, new locations got an appropriate mix of new and remanufactured equipment. Operators quipped that they were really in the moving business, but locations were pleased to receive a newer generation of machines periodically, and everyone was happy.

While we still run into operators who always buy new equipment for their new accounts, we are becoming concerned about a certain loss of forward momentum in the industry. Shortly after microprocessor controls began to replace the older electromechanical timers and counters in vending machines, in the late ‘70s and early ‘80s, manufacturers began to encounter a difficulty that seems not to have been resolved a quarter of a century later. Leading operators, the innovators, complained that the factories were not implementing new technology quickly enough. The smaller operators, content to meet their market segment with proven engineering, complained that the factories were moving too quickly, loading new designs with gee-whiz bells and whistles in order to increase the price.

Vending certainly is not the only business to experience what futurist Alvin Toffler called “future shock.” It took grocers quite a while to adapt to self-service; convenience stores are still completing the transition to barcode scanners. Some surprisingly large companies still don’t have websites.

About a decade into the glassfront snack machine and computer revolutions, which took place in roughly the same period, we ran into some operators who priced all their candy and snack items alike. We asked why, and they told us that the one person in the company who had learned how to change product prices in the database had quit...

This becomes a vicious cycle: new technology is not adopted because it is perceived as imposing additional complexity and, thus, higher costs. But failure to adopt it prevents operators from adding popular new product types, and new convenience features, that command higher prices. Those higher prices would more than offset the startup cost of implementing the technology.

There are operating companies that are keenly aware of all this, and they are the ones that will thrive and prosper. It’s time to move beyond a model in which what can be done is limited to that which is being done already. It’s time, once again, to recognize that you make money from what you sell, not from what you buy.